Opinion

The Great Debate

from Breakingviews:

Rob Cox: GE should put itself up for sale

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

General Electric should sell itself. If that sounds like an April Fools’ Day joke, think again. It’s a real proposal on the ballot at the industrial group’s annual meeting. Setting aside the absence of any obvious buyer for the $260 billion company, the proposition illustrates the kind of shareholder democracy gone wild that many boards, and even some regulators, would like to squelch. They have half a point.

The proposal is one of about six that investors put forward and will be up for a vote at GE’s April 23 annual meeting in Chicago. Not all are quite so extreme. One calls for senior executives to hold options for life. Another would end stock awards and bonuses. Naturally, management is opposed to each of them.

But stockholder Robert Fredrich’s proposal that GE “hire an investment bank to explore the sale of the company” is the most financially illogical. For starters, there is no buyer capable of taking such a big gulp, unless Apple, Google or Exxon Mobil suddenly decides to change strategic course.

Moreover, Fredrich offers no evidence for his view that a sale would “release significantly more value.” A breakup of the finance-engines-turbines-refrigerators conglomerate might be worth considering, but not when the market cap of the company is greater than the sum of its parts, as GE contends is the case today.

Don’t belittle Congress’s attempts to enhance mineral production

As someone deeply familiar with Sen. Lisa Murkowski’s leadership on the “Critical Minerals Policy Act,” John Kemp’s recent Reuters column criticizing the bill struck me as a cynically misguided reaction to her important work. Sen. Murkowski introduced the legislation in order to, as she put it, “keep the United States competitive and begin the process of modernizing our federal mineral policies.” This is a laudable goal and an important process, particularly as our foreign reliance increases for materials needed to build semiconductors, skyscrapers, and everything in between.

In Kemp’s view, however, the bill “deserves to die” because it would authorize new federal funding that he views as a sop to “special interests.” With all due respect, he’s wrong.

Murkowski’s legislation is one of the few examples of real bipartisan cooperation amid the dysfunction of Washington, having attracted nine Republican and nine Democrat co-sponsors.

New Zealand’s bold experiment with regulating recreational drugs

It’s been nearly a century since the United States began its experiment in prohibiting recreational drugs besides alcohol, caffeine and tobacco — and virtually no one sees the trillion dollar policy as a success. A recent study [PDF] shows that drug prices have dropped more than 80 percent in the last two decades alone; purity and availability has risen; and overall addiction and death rates haven’t been cut, despite an exponential increase in incarceration since the 1980s.

Even the hardline U.N. drug czar admitted in the annual World Narcotics Report [PDF] that “the international drug control system is floundering,” citing specifically its inability to match the speed and creativity of Internet-enabled chemists who create and distribute new legal highs like “bath salts” and “fake marijuana” faster than governments can ban them.

But one country is trying a new approach. For the first time in history, New Zealand has created a regulatory body to oversee recreational drugs. Passed by parliament this summer on a vote of 119 to 1, the legislation has already granted interim approval to over 50 products with names like “Dr. Feelgood,” “4:20,” and “Everest Tibetan Toot.”

With unemployment high, France forces stores to close early

The French like to refer to the Champs Elysées in Paris as “the most beautiful avenue in the world,” and 300,000 people stroll up and down it every day to see for themselves, many of them tourists looking to shop. No surprise, then, to find that retailers from Nike to LVMH are willing to pay premium rents for space on the avenue, which runs in a straight line from the Place de la Concorde up to the triumphal arch at Etoile.

Just don’t try to buy anything in the evening. This week a Paris court of appeal ordered the cosmetics chain Sephora to close its flagship store on the avenue at 9 p.m., rather than staying open until midnight during the week and until 1 a.m. on Fridays and Saturdays. It was the latest ruling over store-closing hours that has already forced several other big name retailers in Paris both on and off the avenue to close early, including Apple, France’s Monoprix and the Japanese clothing retailer Uniqlo. Two other stores on the Champs Elysées, Abercrombie and Fitch and perfumer Marionnaud, are also facing legal action.

France has a raft of regulations governing shopping, and its labor unions ensure that they are strictly enforced. As well as strict limits on opening and closing hours, the rules only allow sales during certain periods of the year, price promotions are circumscribed, loss leaders are illegal, store sizes are limited and even the types of shops allowed to open up are regulated. The Swedish clothing retailer H&M fought a long legal battle against the Paris city authorities before it won permission in 2008 to open on the Champs Elysées; City Hall vetoed the plan on the grounds that it was one clothing store too many, and would change the character of the avenue. The issue was finally decided in H&M’s favor by the Conseil d’Etat, the nation’s highest administrative court.

Rebuilding America’s high-wage economy

Good for President Barack Obama for emphasizing the need to restore America’s middle class. However, the actual proposals in his new summer offensive would not go very far toward that worthy goal.

America is moving, at an accelerating pace, toward an economy with tens of millions of poorly paid service jobs at one end, and a relatively small number of astronomically compensated financial jobs at the other. In between the fast food workers, who demonstrated this week for a living wage, and the hedge fund billionaires is a new creative class heavily based on the Internet. But the web entrepreneurs are too narrow a segment on which to rebuild a broad middle class.

For a quarter-century after World War Two, America was a far more equal society — with jobs that paid a “family wage” on a single paycheck. One question dividing economists now is whether the more equal, high-wage economy of the postwar era is irrevocably gone with the steel mills of Pittsburgh. Or whether a service economy can become an egalitarian one with a different set of policies.

The regulatory cliff awaits

As President Barack Obama’s first term ends and second begins, it is an opportune time to reflect on the cost and sheer volume of new red tape his administration has created; analyze its impact on small businesses, and prepare for what’s next.

The Obama administration has pursued an active regulatory agenda. The overall regulatory burden is now $1.8 trillion annually, according to the Competitive Enterprise Institute, and this year alone new rules have added $215.4 billion in compliance costs. Small businesses are understandably concerned that the second Obama term will only add to this already heavy regulatory burden.

There has already been a wave of “economically significant” regulations ‑ those with an annual impact of $100 million or more ‑ that outpaced both the Clinton and Bush administrations. That pace slowed leading into the 2012 elections, but a second wave has been building.

Can the SEC ever improve?

The U.S. Securities and Exchange Commission’s case against Citigroup’s Brian Stoker, a director in the bank’s Global Markets group, seemed clear-cut. Stoker structured and marketed an investment portfolio consisting of credit default swaps. The agency accused him of misrepresenting deal terms and defrauding investors for not disclosing the bank’s bet against the portfolio while pitching the investment vehicle to customers. But when it came to trial earlier this summer, the government could not prove that Stoker knew or should have known that the pitches were misleading, and the jury didn’t convict.

It’s hardly surprising. The SEC’s failure to secure a guilty verdict is one more sign that the commission still has not climbed out of the morass in which it was mired for most of the Bush years. The agency tasked with overseeing some 5,000 broker-dealers, 10,000 investor-advisers, 10,000 hedge funds, and 12,000 public companies, as well as mutual funds, the exchanges and even the rating agencies, is ailing because of outdated rules, systems and structures.

What exactly ails the SEC? For starters, the legal framework in place to prosecute securities fraud is flawed. The commission was established to create rules that prohibit “any manipulative or deceptive device or contrivance.” But intent or recklessness is required to prove fraud or misrepresentation, and that can be difficult because the agency doesn’t have enough staff to comb through reams of documents for rare evidence that someone intended to cheat. In the Citigroup case, the agency instead relied on a rule that simply required a showing of negligence, but the prosecution could not prove even that.

Protecting Americans from tobacco’s damage

Three years ago, President Obama signed the Family Smoking Prevention and Tobacco Control Act into law. Those of us present knew we were witnessing history. With the stroke of a pen and strong bipartisan support from Congress, the Food and Drug Administration was charged with protecting public health from tobacco use – the nation’s single most preventable cause of disease, disability and death. More than 1,200 people die each day in the United States because of cigarette use. That is one person every 71 seconds. Today, I am pleased to report that the law is working.

In passing the Tobacco Control Act, Congress recognized that the linchpin of any successful strategy to reduce adult tobacco use must be to prevent young people from ever starting. More than 80 percent of adult U.S. smokers begin smoking as teens. Each day more than 3,800 young people under age 18 smoke their first cigarette, and more than 1,000 become daily cigarette smokers. Reversing this trend requires aggressive action on two fronts: reducing the attractiveness of tobacco products to children and ending their access to them. That’s exactly what the FDA is doing.

During our first 12 months of regulating tobacco, the FDA pulled candy and certain other flavored cigarettes off the market; issued tough new regulations to halt sales of cigarettes, cigarette tobacco, and smokeless tobacco to young people; banned brand-name sponsorship of sporting events and concerts; and implemented requirements for new warning labels for smokeless tobacco products. The FDA also has begun funding state authorities to assure vigorous enforcement of these new actions to protect our children.

Halting the Corvair made America safer

This is a response to an excerpt from Paul Ingrassia’s Engines of Change: A History of the American Dream in Fifteen Cars, published this month by Simon & Schuster.

The causal stretch by Paul Ingrassia over three decades and millions of intervening human events leads him to conclude that “decades after its demise, in the election of 2000, the Corvair’s legacy improbably helped to put George W. Bush in the White House.”

Egads! – as the British say. His otherworldly trek through American history reminds me of Edward Lorenz’s “butterfly effect,” in which the trail of a tornado is traced all the way back to the flapping of a butterfly’s wings thousands of miles distant. It is one thing to lament the deadly, dancing design of the Corvair until the 1965 model, when the stabilizing, dual-link suspension system was finally installed; it is quite another to burden this automotive offspring of GM’s Ed Cole with the lawless, corporatist, war-starting, anti-democratic Bush regime selected by five Supreme Court justices-turned-Republican politicians in their 5-4 dictate of Bush v. Gore.

How the Corvair’s rise and fall changed America forever

This is an excerpt from Engines of Change: A History of the American Dream in Fifteen Cars, published this month by Simon & Schuster.

However it unfolds, this year’s U.S. presidential election is unlikely to be as close as the one America experienced in 2000. That election was decided, after months of contention and suspense, by disputed ballots and a razor-thin result in Florida.

The historic events, however, were set in motion 40 years earlier by a badly flawed automobile, the Chevrolet Corvair. In the mid-1960s the Corvair made Ralph Nader famous. It also made lawyers ubiquitous, thereby making lawsuits one of the great growth industries of the late 20th Century. And decades after its demise, in the election of 2000, the Corvair’s legacy improbably helped to put George W. Bush in the White House. The car’s story is one of genius, hubris, irony and tragedy, not to mention unforeseen long-term effects on American life and thought.

  •